The Happy Talk Express

The economy is a mess. The financial markets are in a panic. But these idiots think we mustn't say anything negative.

Having difficulty coping with financial stress? Forget Bernanke and Paulson. Think Rodgers & Hammerstein *. In the excellent production of South Pacific at the Lincoln Center in New York (something tells me tickets there will be easier to get soon), one of the highlights is the song "Happy Talk." "Happy talk, keep talking happy talk," sings Bloody Mary. "Talk about things you like to do." Elsewhere in New York, there's a sense afoot that the real problems we face aren't the crippled financial system or the slowing economy, but rather all the bad stuff people are saying about them.

In other words, not enough Happy Talk.

To ward off panics, financial media organizations are keeping Unhappy Talk to a minimum. "We're very careful not to throw words around like 'meltdown' and 'free fall,' " CNN correspondent Ali Velshi, who is getting mucho face time thanks to the meltdown and free fall, told the New York Times. The Rupert Murdoch-owned Wall Street Journal is engaging in un-Murdochian restraint, banishing words like crash and pandemonium. Maybe I have a limited vocabulary, but I'm not sure how else to characterize a month in which the country's largest financial institutions, Fannie Mae and Freddie Mac, had to be nationalized; Lehman Bros., the fourth-largest investment bank, filed for Chapter 11; AIG, a component of the Dow Jones Indsutrial Average, had to turn over most of its stock to the government in exchange for an $85 billion loan; the government had to guarantee money-market funds to stop people from hoarding cash under their mattresses; the nation's largest savings and loan, Washington Mutual, failed; and the nation's greatest financial minds declare that a bailout the size of the Netherlands' GDP is needed to stop the bleeding. Yes, we have to be careful about crying fire in a crowded theater. But calling Wall Street's meltdown a meltdown is more like crying fire in a crowded inferno.

It's one thing for media organizations to censor themselves. It's quite another for the government to ban certain types of speech. Short-selling is the practice through which investors borrow shares from one another; sell them, hoping or expecting they will fall; and then buy them back at a lower price and return to the original owner. Shorting stocks is an essential component of hedge funds' strategy: It's how they manage risk. But just as the last refuge of scoundrels is patriotism, the last refuge of incompetent CEOs is short-bashing. "I will hurt the shorts, and that is my goal," Richard Fuld, chief executive of Lehman Bros., said last April. Instead, he delighted the shorts by running the company into the ground.

Short-sellers don't kill companies. Managers do. But in late September, the Securities and Exchange Commission banned short-selling of financial and finance-related stocks. Call it the bucket list—a list of companies that might kick the bucket if short sellers were able to operate. The list, which started with 799 lucky duckies, is now approaching 1,000 and includes IBM and drug-store chain CVS. (Hey, at some level we're all finance companies). The list also includes two publicly traded hedge funds. In other words, you can't bet against the guys who are now forbidden to bet against stocks. Joseph Heller, call your agent.

What's wrong with this? Economists tell us that a stock price is nothing more than the sum total of information about a company and its prospects. The trading day is thus a debate in which people express favorable opinions (by buying the stock) or negative ones (by selling the stock). Banning short-selling is like holding a debate but telling people they can argue only one side. It's like wholly disregarding half of the extant opinions. It's like Fox News.

The third set of Happy Talkers are incumbent politicians. The past year has shown plenty of evidence of unsound fundamentals—eight straight months of job losses, the failure of financial institutions, etc. And yet the word from Washington (at least the Fox News-watching half of Washington) for much of 2008 has been that things are just fine. "The fundamentals of our economy are strong," President Bush said in August.

There's nothing wrong with trying to bolster confidence. But if you ban pessimism as a matter of course, it creates a false impression, which makes the fall all that more shocking and disorienting. Putting on a happy face too frequently can also make it harder to rally the troops in a time of crisis, as management guru John Kotter writes in his new book, A Sense of Urgency. It's tough to convince people of the need to make a significant change, pronto, if they've been conditioned to think that everything is hunky-dory. Which is why Washington policymakers have had to dial up the fear factor, big time, to light a fire under Congress. A few weeks ago the fundamentals were sound. This week, if you tuned into C-SPAN, it looked we could be staring at a replay of the Great Depression.

The source of our current angst and distress isn't a surfeit of recent negative talk. To the contrary, several years of excessive Happy Talk and an acoustical system that dims the voices of those expressing contrary opinions have been important contributing factors to the crisis. An environment in which discouraging words are seldom heard may be fine for a place where the deer and the antelope play, but not for the frenzied range where the bulls and the bears roam.

A version of this article also appears in Newsweek.

Correction, Oct. 6, 2008: This article originally misspelled the last name of Richard Rodgers. (Return to the corrected sentence.)

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